The private pension funds fell dramatically during the crashing market in Q4 2018. The co-founder of Morgan Creek Digital, Mark W. Yusko, suggests that the funds should consider investing in cryptocurrencies to balance the risk.
Funds realised the second biggest loss in Q4 2018 since the 1950s.
People all over the world work hard for years and save money every month into pension funds. After a lifetime of work, they can stop working and still get their pension. However, the funds need to be able to pay out the pensions to its investors. While it should be a certainty, Q4 revealed that the funds are exposed to more market volatility than they should.
Mark W. Yusko, Morgan Creeks Digitals co-founder, argues that private pension funds are in more trouble than they think. In Q4 2018 it became clear that they are overexposed to some asset classes. The funds experienced the second biggest loss since the 1950s, and some saw a 9,1 per cent loss in just 90 days.
Moreover, this is scary, and Tavi Costa Tweeted that funds expose millions of peoples pensions to a much higher risk than previously understood. If we dig a bit deeper, it becomes clear that funds are overexposed to certain asset classes. The worlds largest pension fund, Japan’s government pension investment fund keep about 50-percent of their assets in global equities. As a result, the fund had already lost about $136 billion in Q4 2018, leading to the 9.1-per cent quarter-loss.
How can this happen? The funds base their exposure on past performance, and it is no secret that the equity valuation is very high and that we are in one of the longest bull markets in history.
What should pension funds do? – Invest 1% in cryptocurrencies
However, no one should according to the other co-founder of Morgan Creek Digital – Pompliano, invest based on past performance. Instead, the focus should be on what is likely to happen in the future. He says:
“Humans do two things really well — they buy what they should have bought, and they sell what they are about to need.”
Moreover, the concentrated equity portfolios can turn ugly when the tide turns, and the valuations on companies begin to return closer to longer term averages. The pension funds should, therefore, look into other asset classes and diversify their portfolios. Pompliano urges them to evaluate the option to invest in cryptocurrencies such as bitcoin, ethereum, xrp, as well as other parts of the blockchain industry. An allocation of 1% into crypto assets could be enough to hedge against any losses in the equity market. People are holding their promise by working hard, and it is time that pension funds hold theirs.
However, institutions are not unfamiliar with cryptocurrencies and to be fair, two pensions funds have already anchored Morgan Creeks crypto-focused venture. Fidelity recently went live with its custodial service and the financial institution handles $7 trillion daily. Even the Intercontinental Exchange (ICE) is creating
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Dennis Sahlström has been trading and investing since 2012 and has for the last two years been consistently profitable. He has been in the crypto- and blockchain space since the middle of 2017 and realized its potential for our world, not least how it is transforming the society we live in. He has now created an education platform, together with the wealth coach Marcus the Maria. They teach regular people how to invest and trade in the cryptocurrency market with proven strategies. If you want to learn more and feel like its time to get into this new asset class, download our free book and register to the next live training to get your future in cryptocurrencies started.